The 11 Essential Rules to Setting Up a New Business in Texas

Starting a business in Texas is often described as simple. In reality, building a company correctly — one that protects you legally, operates efficiently, and scales without friction — requires far more than filing paperwork with the Secretary of State. Entrepreneurs who succeed long-term follow certain foundational rules. Below are the eleven essential principles every Texas business owner should understand before opening the doors.

Rule 1: Choose Your Entity Strategically

Your choice of entity is not just a formality — it determines liability exposure, tax treatment, governance structure, and future investment flexibility. While many businesses default to a limited liability company because of its simplicity and liability protection, others may benefit from corporate structuring, especially if outside capital or equity incentives are anticipated. The right structure should align with your growth goals, tax planning strategy, and risk tolerance from day one.

Rule 2: Filing Is Only the Beginning

Submitting a Certificate of Formation to the Texas Secretary of State creates the entity, but it does not make the business operational. After formation, owners must obtain an EIN from the IRS, evaluate whether a sales tax permit is required, and determine any industry-specific licensing obligations. Many first-time founders mistakenly assume state approval equals readiness to operate; in reality, formation is simply the first administrative step.

Rule 3: Put Governing Documents in Writing

An LLC without a Company Agreement or a corporation without Bylaws is operating without an internal rulebook. Even among trusted partners, written governance documents clarify ownership percentages, voting rights, capital contributions, and exit procedures. Clear documentation prevents disputes, protects minority owners, and establishes decision-making authority long before disagreements arise.

Rule 4: Separate Banking Immediately

Opening a dedicated business bank account is essential to maintaining liability protection. Banks typically require formation documents, an EIN confirmation letter, and governing agreements before opening accounts. In addition, many businesses will need merchant processing services, payroll integration, and potentially separate operating and tax accounts. Commingling funds is one of the quickest ways to undermine liability protection.

Rule 5: Budget for the Costs You Don’t See Coming

Filing fees are minimal compared to the true cost of operating a business. Asset purchases such as equipment, vehicles, furniture, and technology often require financing, which may involve personal guarantees or secured lending arrangements. Recurring software subscriptions — accounting platforms, payroll services, CRM systems, document storage, cybersecurity tools, and e-signature services — quickly accumulate into significant monthly overhead. These expenses should be forecasted before revenue begins.

Rule 6: Assemble Your Financial Team Early

One of the most underestimated hurdles in launching a business is finding reliable financial support. A competent bookkeeper ensures monthly reconciliation and clean financial statements, while a CPA helps with tax elections, estimated payments, and franchise tax compliance. Waiting until tax season to address accounting issues often results in unnecessary stress and avoidable penalties.

Rule 7: Understand Texas Franchise Tax Obligations

Texas does not impose a state income tax, but most entities are subject to franchise tax reporting requirements. Even businesses that owe no tax must file annual reports to remain in good standing. Failure to comply can result in forfeiture of the entity’s right to conduct business, which in turn may compromise liability protections.

Rule 8: Address Insurance Before You Need It

Insurance should be secured before contracts are signed or operations begin. Depending on the industry, this may include general liability coverage, professional liability insurance, workers’ compensation, commercial auto coverage, or cyber liability policies. Landlords, lenders, and larger clients frequently require proof of coverage as a condition of doing business.

Rule 9: Document Relationships from the Start

Handshake agreements are rarely sufficient in a commercial setting. Customer contracts, vendor agreements, employment arrangements, and confidentiality provisions reduce ambiguity and protect the company’s interests. Well-drafted agreements also enhance credibility when working with sophisticated partners or investors.

Rule 10: Prepare for Administrative Reality

Running a business involves more compliance and paperwork than most founders anticipate. Payroll filings, sales tax remittance, franchise tax reports, loan covenants, subscription management, and state correspondence all require consistent attention. The administrative burden is manageable, but only if systems are implemented early.

Rule 11: Think Long-Term from Day One

Every early decision affects future flexibility. How ownership is structured impacts buyouts and succession planning. How capital contributions are documented affects valuation and investment readiness. How governance authority is defined influences operational efficiency. Businesses that scale smoothly are typically those built with long-term planning in mind rather than short-term convenience.

BONUS Rule 12: Don’t Navigate the Process Alone

Each of these rules raises important legal and strategic questions: Which entity structure best protects you? How should ownership be divided? What tax elections make sense for your projected revenue? How should you document capital contributions or structure loans? What compliance obligations apply to your specific industry?

The difference between a business that merely launches and one that thrives often comes down to the quality of its foundation. Working with experienced counsel ensures your formation documents are properly drafted, your governance structure aligns with your goals, your liability exposure is minimized, and your compliance obligations are anticipated rather than discovered through penalties or disputes.

If you are starting a business in Texas — or even if you have already formed one and want to confirm it was structured correctly — consult with an attorney at JH Law. A strategic conversation now can prevent costly corrections later and give you confidence that your company is built to grow, operate, and endure.